"As recently as three years ago, the conventional wisdom held that public-pension promises, no matter how extravagant, are sacrosanct even if a city files under Chapter 9 ... The first hint that this thinking might be wrong came after Vallejo, Calif., filed for bankruptcy in 2008. Vallejo successfully restructured its collective-bargaining agreements and ... the city believed that Chapter 9 gave Vallejo the legal authority to alter its pensions as well. But CalPERS ... threatened litigation. The city concluded that any reduced pension costs wouldn't be great enough to offset the legal costs and backed off. Since Vallejo, the pension question has become increasingly hard to avoid."  MORE >>